ALEXANDRIA, Va. (1/19/10)—Guidance to federal examiners to “look beyond financial ratios” to determine a credit union’s financial condition—and particularly when examining a low-income (LICU) or community development credit union (CDCU)—was issued late Friday by the National Credit Union Administration (NCUA). In a Letter to Credit Unions (10-CU-1), NCUA Chairman Debbie Matz noted that the contents of the guidance apply to all federal credit unions but the primary focus is “to discuss the characteristics, benefits, and unique challenges of low-income credit unions and community development credit unions.” “One of the primary reasons for the creation of credit unions is to make credit available to people of modest means for productive purposes.” Matz wrote adding, “This guidance was developed based on discussions with dedicated low-income credit union management.” The agency has been working on the guidance for some time, and has been in communication with the National Federation of Community Credit Unions as the guidance developed. The agency released the letter shortly after meeting Friday with Credit Union National Association’s (CUNA’s) Small Credit Union Committee. The chairman of that CUNA committee, CEO Frank Michael, of Allied CU, Stockton Calif., said after that meeting that the NCUA has a clear view of the existing divide between encouraging messages sent by the agency board to low-income and community development credit unions, and the sometimes discordant, harsh treatment they experience from examiners. The NCUA letter offers 11 pages of guidance to examiners. It clearly defines some operational differences allowed LICUs, which could also apply to many CDCUs, including additional sources of funding and resources from both the NCUA and outside parties. The guidance, in part, tells examiners to consider how these different types of available funding could affect balance sheets. For instance, the letter said:
*Funding sources such as nonmember deposits, secondary capital, and loans from the Community Development Revolving Loan Fund will affect the financial ratios of these usually small credit unions; * In addition to the effects of the additional funding, examiners must also consider the unique characteristics of members in LICUs and CDCUs; * Moreover, examiners should recognize that LICUs and CDCUs systematically show higher operating costs than other credit unions because of the nature of the field of membership they serve. * Similarly, delinquency rates at LICUs and CDCUs, while often higher than other credit unions, do not automatically translate proportionally into charge-offs.
Use the resource link below to acce4ss the NCUA letter.